Philippine Development Essay

ALDABA : A Research Journey 133

Philippine Development:A Research Journey Through the

Philippine Journal of Development

FERNANDO T. ALDABA *

INTRODUCTIONAfter 27 years of existence, the Philippine Journal of Devel-

opment (PJD) is considered one of the longest running journals inthe country. First published in 1974, the PJD started as a semestralpublication of the National Economic and Development Author-ity (NEDA) and was called the NEDA Journal of Development. TheJournal aimed to serve as a vehicle to disseminate the importantfactors affecting the development process as well as a forum wheredevelopment issues could be discussed from the larger perspec-tives of the social sciences. With the founding of the PhilippineInstitute for Development Studies (PIDS), the management of theJournal was transferred to it in 1981.

The PJD has tried to capture the key issues of every decadefrom the dictatorship of the 70s; the peaceful revolution and diffi-culties of a fledgling democracy in the 80s; the more politicallystable 90s, which paved the way for more substantial economicreforms; to the globalization and information technology age ofthe twenty-first century, which was ushered in by another PeoplePower revolution. The economic policy shifts and the associatedadjustment costs that characterized every decade have made thePhilippine development arena an exciting challenge to research

* Southeast Asia Research and Advocacy Officer of the Catholic Institute for InternationalRelations and faculty member of the Economics Department, Ateneo de Manila Univer-sity. The author wishes to acknowledge Ms. Jennifer P.T. Liguton, PIDS Director forResearch Information and PJD managing editor since its early years, for providing thebackground papers and the complete back issues of the PJD.

Philippine Journal of DevelopmentNumber 54, Volume XXIX, No. 2, Second Semester 2002

PHILIPPINE JOURNAL OF DEVELOPMENT1 3 4

scholars and policymakers within and outside the country. Thecountrys boom-and-bust cycles, unsustainable economic growth,economic reforms like liberalization, privatization and deregula-tion as well as our participation in multilateral and regional trad-ing arrangements have catalyzed numerous studies and analyses.The PJD has adequately served as a venue for these studies along-side topics ranging from macroeconomic stabilization and inter-national competitiveness to poverty reduction, community-basedforest management and rural credit markets.

This paper embarks on a research journey as it reviews thevarious PJD articles that have been published through the years.Its main objective is to examine the Journal in terms of how it hascontributed to the understanding of key developmental issues amidthe changing international economic and political landscape, andhow it has responded to the key policy issues and concerns thathave emerged over time.

What role has the PJD played in the countrys academic andpolicy research process? And did it attain its original goals? Thepaper will seek to answer these and other questions. It is dividedinto five sections. After an introduction in the first section, the sec-ond section gives an overall view of the economic and politicalevents during the period 1972-2001 and the main objectives andthrusts of the PJD. This provides the overall context against whichthe PDJ is assessed. The third section presents the significant con-tributions of the PDJ in terms of three major areas: developmentissues and concerns, mathematical models and statistical tech-niques, and forward-looking articles. The fourth section looks atgaps and the research areas that could have been served by thePDJ while the fifth section summarizes the major findings and con-clusions of the paper.


PJD AND THE PHILIPPINE DEVELOPMENTAL EXPERIENCE

The Context: Key Economic and Political Events Duringthe Period 1972-2001

The 70s started with the declaration of martial law and wascharacterized by dictatorship under the Marcos administration.During this period, the countrys debt increased tremendously asa result of two oil price shocks and the heavy borrowing from theeasily available recycled petro dollars. To spearhead its economicdevelopment, the government attempted to encourage nontradi-tional exports and promulgated laws to streamline and rational-ize investment incentives and encourage foreign investments inthe country.

The early 1980s was characterized by a turbulent economicand political atmosphere, reminiscent of the situation during thelate 60s. Insurgency heightened as the Marcos government beganto lose its credibility and public support. Amid this economic andpolitical chaos, the Marcos government initiated several economicreforms. In 1980, it launched a trade liberalization program undera World Bank structural adjustment loan. The government pur-sued some policy changes to liberalize the financial sector and toimprove export and investment incentives. However, several ofthese reforms were not thoroughly implemented as an economicand political crisis was in the offing.

After the second oil price crisis, the Marcos government be-gan to encounter serious economic problems arising from its in-creasing debt service burden, declining export receipts, and loweconomic growth rates. President Marcos lifted martial law in Janu-ary 1981, but did not diminish his powers. Political unrest, expan-sionary demand policies, a worldwide debt crisis, and the struc-tural inability of the economy to adjust quickly to the severe exter-nal shocks of the post-1979 period such as higher oil prices, aninternational recession, and declining export prices precipitated adramatic loss of investor confidence and a foreign debt morato-


rium. The assassination of Benigno Aquino Jr., the opposition leaderregarded as the most credible alternative to Marcos, in August 1983,and the resulting political disturbances triggered capital flight andanother balance-of-payment (BOP) crisis.

In February 1986, an aborted military coup, which turnedinto a massive uprising by the people, overthrew Marcos. The newregime of Corazon Aquino succeeded in restoring democratic in-stitutions in the political arena and posted improvements in thecountrys economic growth till 1989. However, the political stabil-ity of the country remained fragile owing to threats from right-wing military renegades and communist revolutionaries. Aquinosterm saw a series of attempted coup attempts and rumored coupsinvolving elements of the military. The almost successful coup ofDecember 1989 severely damaged the governments standing.

The Aquino administration launched a series of macroeco-nomic and structural reforms to accelerate growth and reduce pov-

1972: Declaration of martial law1973: First oil shock1979: Second oil shock1980: Trade Liberalization Program under a World Bank structural adjustment

loan1981: Lifting of martial law1983: Assassination of Benigno Aquino, Jr.; BOP crisis1984: Holding of massive demonstrations with the participation for the first

time of the urban middle class and business community1986: EDSA 1 People Power Revolution, Corazon Aquinos assumption of power;

July and November coup attempts1987: August coup attempt1989: Nearly successful December coup attempt1990: Gulf War and oil price increase1991: BOP crisis1992: Election of Fidel V. Ramos1994: RP joins the World Trade Organization1997: Asian currency crisis1998: Election of Joseph Estrada2001: EDSA 2; Gloria Macapagal-Arroyos assumption into office

Box 1. Philippine milestones


erty by enhancing economic efficiency and reducing governmentintervention in productive activities in favor of the private sector.The government implemented reforms to simplify the overall taxstructure and improve collection performance, and introduced avalue-added tax. It also moved, albeit more slowly, to liberalizetrade. At the same time, the government introduced theprivatization of state-owned banks and nonfinancial corporations.

In May 1992, the democratic transition process was com-pleted with the election of Aquinos former defense secretary, Fi-del V. Ramos, as President. His administration initiated peace ne-gotiations with both right-wing military rebels and communist in-surgents. This move was a major factor in the establishment ofpolitical stability during his term. The Ramos administration con-tinued the economic agenda of Aquino, which revolved aroundderegulation and economic liberalization. Significant structuraladjustment reforms were introduced in transportation, telecom-munications, water and power. Fiscal and monetary reforms werepursued to liberalize trade, deregulate business activity, improveexport competitiveness, promote foreign direct investments andprivatize state enterprises. The Ramos administration also intro-duced build-operate-transfer schemes to increase private sectorparticipation in infrastructure projects.

After the outbreak of the 1997 currency crisis, a popularmovie actor, Joseph Estrada, won the May 1998 presidential elec-tions. The succession of scandals and charges of corruption againstEstrada greatly shook business confidence. Toward the middle ofhis term, the president faced an impeachment trial on accusationsof bribery, graft and corrupt practices, and betrayal of public trust.The collapse of the impeachment process sparked public proteststhat culminated in People Power II. For the second time in 15 years,people power did it again and forced Estrada from office in Janu-ary 2001. Then Vice-President Gloria Macapagal-Arroyo took overto serve out the remaining years of Estradas term.


The PJD Over theYears: Key Objectives and Research ThemesThe early years. The PJD was first published in 1974 under

the National Economic and Development Authority (NEDA) andwas called the NEDA Journal of Development. It aimed to commu-nicate to all those involved in and concerned about the develop-ment process the important factors to consider in such a process.It also served as:

a) a vehicle to disseminate technical information amongprofessionals within and outside government; and

b) a forum to air developmental issues through the inter-play of professional views from the standpoint of eco-nomics and, in so far as they were relevant, from thelarger perspectives of the social sciences.

The Journals 1974 maiden issue tackled mostly topics on theeconomy and highlighted economic methodologies and analyses.Mangahas and Tan (1974) delineated seasonal patterns for a se-lected number of indicators on the Philippine economy. Their re-sults show such patterns in 58 of 158 variables assessed. Juradoand Encarnacion (1974) utilized the 1961 and 1965 input-outputtables of the National Economic Council (NEC) but did not findmuch insight into the structural changes in the Philippine economy.Ferrer (1974) analyzed the NEC and Bureau of Census and Statis-tics (BCS) tables and concluded that both may be untrustworthytools for projection and planning purposes because of concep-tual differences and measurement errors. Alonzo (1974) estimatedthe shadow price or the social opportunity cost of labor whileNoriega (1974) used five investment criteria to compare the In-vestment Priorities Plans and the Export Priorities Plans of the Boardof Investments. Finally, Frianeza (1974) applied the benefit-costanalysis to the local grape industry.

The first issue published under PIDS management came outin 1981 and the name was changed to Journal of Philippine Devel-opment (JPD). PIDS was established in 1977 as the governmentseconomic think tank. The Journals editorial policies were set byan Advisory Board composed of prominent economists and social


scientists from government and the academe. Over the years, thekey objectives of the Journal have included the following:

a) To serve as an outlet of technical studies by PIDS re-search staff and researchers from other institutions fo-cusing on various aspects of development and bearingimplications for policy; and

b) To present development issues not only from the per-spective of economics but also from its interplay withvarious social science perspectives, with the objectiveof highlighting implications for policy decisions.

The focus of the JPD was not confined mainly to economic stud-ies but also covered other aspects of development such as business,sociology, political dynamics, public administration and foreign rela-tions.

Topics in this first issue of the Journal of Philippine Developmentincluded the estimation of effective protection in the manufacturingindustry, 1981-1985 (Bautista 1981), an analysis of fertilizer policies(David and Balisacan 1981), an estimation the demand for gasoline(Young 1981), improvement of the export price index (Reyes andCantillep 1981), estimation of the literacy rate (Alba 1981) and deter-mination of the buoyancy and elasticity of revenue (de Perio andTrinidad 1981). What was noticeable, though, in this issue was thevaried application of technical and economic analyses in areas cov-ering fiscal, trade, industrial, agricultural and human resource poli-cies. This has been a continuing contribution of the Journal to thecommunity of development experts and practitioners.

PIDS Research Thrusts and PJD ThemesPIDS, as the governments leading economic and develop-

ment institution, determines its research agenda every five years.This review tries to look at how the Journal reflects PIDS researchthrusts over the years. Table 1 shows the various themes that thePIDS chose to focus on during the various periods.

Meanwhile, Table 2 shows the coverage by the Journal forthe various PIDS research themes across the years. The Journal


Table 1. PIDS research thrusts over the years

Major Research Area/Theme

1978 -1980 (NEDA)

1981 -1985 1986 -1990 1991 -1999 2000 -2004

Policy Analysis, Planning Tools and Monitoring Systems

Planning methodology

Policy analysis, Planning tools and monitoring systems

Macroeconomic Growth, Fiscal Policies and Public Debt

Government spending and fiscal policy,savings

Macroeconomic policies: public debt, fiscal and government spending, privatization, exchange rate, BOP and liberalization policies

Macroeconomic management in a globalized setting

International Trade and Investments, Com petition and Competitiveness

Trade expansion and industrial policy; ASEAN economic cooperation

Trade expansion, agricultural and industrial development and energy

Trade expansion, agricultural and industrial development

Trade, industry, and international economic relations

Competitiveness and competition policies

Financial , Monetary, Banking and Credit Policy

Monetary, banking and credit policy

Resource mobilization; aspects of fiscal and monetary policies

Resource mobilization; aspects of fiscal and monetary policies

Population, Human Resource and Social development

Population, social and human resource development

Employment, human resource development and technology

Employment, human resource development and technology

Human resources and social development

Social sector reform

Poverty and Income Distribution

Growth and income distribution

Poverty, income and wealth distribution

Poverty, income and wealth distribution

Urban and Regional development, including Housing

Urban, rural and regional development

Regional, rural and urban development

Regional, rural and urban development

Natural Resource and

Natural resource

Natural resources and

Natural resources and

Environment and natural

Environment development environment environment resources and management

Agricultural development

Infrastructure development

management

Energy and electricity

management

Science and technology policiesAgricultural, rural and regional developmentEnergy and infrastructure development

Management

Science and Technology

Agricultural and Rural development

Infrastructure Development

Governance

management

Modernizing Philippineagriculture

Infrastructure development

Governance


Table 2. Philippine Journal of Development thematic coverage by number of articles:1974-2001a

Themes/Topics 1974 -1980

(NEDA)

1981 -1985

1986 -1990

1991 -1995

1996 -2001

1974 -2001

(Total)

Policy Analysis, Planning Tools and Monitoring and Statistical Systems

21 23 5 10 9 4 67

Economic Growth, Fiscal Policies, Public Debt and Government Spending

3 1 9 8 1 22

Monetary, Banking, Financial and Credit Policy (including rural and microcredit )

2 3 14 6 10 5 34

International Trade and Relations; Competitiveness and Competition

15 13 11 8 22 7 69

Infrastructure Development(including energy)

1 3 1 0 2 7

Population, Human Resources and Social Sector Development

10 1 5 5 8 29

Poverty, Income and Wealth Distribution

2 1 1 5 4 13

Natural Resource and Environmental Management

1 1 5 2 18 8 27

Science and Technology Policies

0 1 59 610 2 14

a Each journal article was classified into various themes or topics, if applicable.b There was a special issue on system of national accounts, vol. 10, no. 2, 1983, and impactassessment of projects (vol. 11, no. 1, 1984).c There was a special issue on rural financial markets, vol. 16, no. 1, 1989.d There was a special issue on APEC, vol. 23, no. 1, 1996.e There was special issue on watersheds, vol. 26, no. 1, 1999.f There was a special issue on S&T, vol. 16, no. 2, 1989.g There was a special issue on IPR, vol. 18, no. 2, 1991.

continued on the next page


has already published 293 articles and papers in a span of almostthree decades. The top eight topics/themes over a 27-year periodinclude:1

a) International trade and relations, competitiveness andcompetition 69/293

b) Policy analysis, tools, models, statistical systems 67/293

c) Agriculture and rural development 61/293d) Urban development and housing 35/2932

e) Monetary, banking, financial and credit 34/293f) Population, human resources and social sector devel-

opment 29/293g) Natural resource and environmental management 27/

293h) Macroeconomic growth, fiscal policies, public debt 22/

293i) Science and technology policies 14/293j) Poverty, income and wealth distribution 13/293

Table 2 (continued)

Themes/Topics 1974 -1980

(NEDA)

1981 -1985

1986 -1990

1991 -1995

1996 -2001

1974 -2001

(Total)

(including IPR)Agricultural and Rural Development

8 13 11 19 15 6 61

Urban 31 12 0 0 2 2 35Development

h There was a special issue on small farm mechanization, vol. 12, no. 1, 1985i There was a special issue on housing (1974-75, vol. 1 and 2, no. 2, 3, 4) with 30 articles.

1 The ratio is the number of articles written on the topic over the total number of articlespublished in the Journal.2 High percentage is due to the Housing special issue published in 1974-1975.


Key themes over the various research planning periods ofPIDS have evolved to include urban development and housing;policy analysis tools and statistical systems; international trade andcompetitiveness; agriculture and rural development; monetary,banking, financial and credit policies; population and human re-source; and natural resource and environmental management. Box2 lists down the top three to five research areas for each period.3

Box 2. Key themes in the Journal over the different periods

3 The ratio is the number of articles written on the research area over the number of articlesfor the period.

1974-1980

1. Urban Development and Housing, 31/832. Policy Analysis, Tools, Monitoring and Statistical Systems 21/833. International Trade and Relations, Competitiveness 15/834. Population, Human Resource and Social Sector Development 10/835. Agriculture and Rural Development 8/83

1981-1985

1. Policy Analysis, Tools, Monitoring and Statistical Systems 23/472. Agriculture and Rural Development, 13/473. International Trade and Relations, Competitiveness 13/47

1986-1990

1. Agricultural and Rural Development 19/552. Monetary, Banking, Financial and Credit Policies 14/553. International trade and relations, Competitiveness 11/554. Policy Analysis, Tools, Monitoring and Statistical Systems 10/55

1991-1995

1. Agricultural and Rural Development 15/512. Monetary, Banking, Financial and Credit Policies 10/513. Policy Analysis, Tools, Models, Statistical Systems 9/514. International Trade and Relations, Competitiveness 8/515. Economic Growth, Fiscal Policies, Public Debt 8/51

1996-2001

1. International Trade and Relations, Competitiveness 22/572. Natural Resource and Environmental Management 18/573. Population, Human Resource and Sectoral Development 8/574. Agricultural and Rural Development 6/57


Between 1974 and 1980, the economy was characterized byan increasing export-orientation and openness to foreign invest-ments. The following significant articles saw print in the PDJ: Sicat(1976) highlighted the dilemma between nationalism and economicinterdependence the country experienced it during that time;Alburo (1979) pointed to a new approach of poverty definitionand measurement as the then prevailing ways of defining andmeasuring poverty were flawed and insufficient; Tan (1978) re-estimated effective protection rates by showing the countrys moodof rethinking the import substitution policy; Mijares (1978) out-lined future directions toward the formation of a Philippine Statis-tical System, an important milestone in gathering relevant economicdata for the country.

The period 1981-1985 was one of economic recession andpolitical turmoil. Philippine Economic Society stalwarts assessed thecountrys chances amid a turbulent economic setting. Sicat (1982),Bautista (1982, 1985), Estanislao (1982) and Follosco (1982) highlightedthe need to improve infrastructure, expand export markets, strengthensocial institutions, encourage entrepreneurship, stimulate domesticdemand and implement more market-oriented policies as the key strat-egies during the early 80s. Another important contribution, Oshima(1983) analyzed why the Philippines had lagged behind its ASEANneighbors and warned of the coming of a serious debt crisis for thecountry.

The period 1986 to 1990 was one of transitions for a fledglingdemocracy that had just gone through almost 14 years of martial lawand was experiencing renewed confidence in the economy. Signifi-cant contributions mirrored the urgent concerns of the period:Manasan (1987, 1988) and Habito (1987) highlighted the need andfeasibility of tax reforms; Klein (1987) recommended options in deal-ing with the debt problem; Montes (1988) reviewed structural ad-justment and debt conditionalities in the Philippines; Manasan andBuenaventura (1987) examined public enterprises and recommendedthe need for rationalization and enhancement of efficiency in theremaining state firms.


The period 1990 to 1995 was another phase of crisis andrecovery for the economy. The early years saw both a military up-rising and a volcanic eruption ushering in negative growth. From1993 to 1995, however, recovery was in the offing. Politically, itwas also the start of an era of decentralization and devolution.Relevant articles included Manasan (1992), which warned of thefiscal constraints of the Local Government Code; Intal (1995), whichthoroughly discussed the battlecry of the Ramos administrationduring that timeeconomic restructuring toward Philippines 2000and a Newly Industrialized Country (NIC) status; and Balisacan(1993), which explained why, despite agricultural growth in thelast decade, rural poverty persisted. A 1994 special issue payingtribute to sociologist Gelia Castillo featured prominent economistsand social scientists who examined agricultural development, hu-man resource and population issues, and environmental concerns.

Another boom-and-bust period, 1996 to 2001, witnessed theeconomys relatively high growths in 1996 to 1997, only to be haltedagain by the financial crisis that hit the region. Globalization wasthe keyword and key contributions included Milo (1999), whichlooked at the crisis and its social implications, Intal and Austria(2000), Pineda (1997), Cororaton (1997), and the 1996 special is-sue on APEC, which underscored liberalization and regional inte-gration as relevant strategies for Philippine competitiveness. Aus-tria (2000) assessed the chances of our IT industry amid the pre-vailing environment.

SIGNIFICANT CONTRIBUTIONS OF THE PHILIPPINEJOURNAL OF DEVELOPMENT

Development Issues and ConcernsOver a span of 27 years, several key development problems

of the Philippines were given ample coverage by the PhilippineJournal of Development. Several of these key issues remain as im-portant concerns of not only government but the other sectors ofsociety. These issues were chosen on the basis of their continued


relevance to Philippine development in terms of analyses, insightsand policy recommendations.

Agricultural and rural development. One of the major rea-sons cited for the slow development of the country is its failure tosustain and maintain growth in the agricultural sector over thelast three decades. Growth in the sector can catalyze the wholeeconomy through its backward and forward linkages. More im-portantly, increased productivity in its workforce reduces povertyincidence, as most poor people live in rural and agricultural areas.The PJD has extensively featured various articles and papers dis-secting agricultural growth and performance in the rural areas.Balisacan (1993) observed that in the case of the Philippines, pov-erty reduction from the second half of the 60s to the early 80swas relatively small despite the impressive growth of the sectorduring this green revolution phase. He concluded that agriculturalgrowth was a necessary but not sufficient condition for sustaineddecreases in poverty incidence. Hence the need for additional policyreforms and programs that would broaden the inter-sectoral em-ployment linkages of agricultural income growth, and enhanceproductivity and build human capital for the impoverished. To-day, rural poverty is still a major concern of the government assustained growth in the rural areas remains elusive.

Bautista (1994) explained that the expansion of rural nonag-ricultural activities is a crucial component of Philippine rural de-velopment. Agricultural growth should be able to stimulate rural-based industrialization. From 1965 to 1980, despite the respect-able agricultural growth, the number of rural nonagricultural en-terprises did not grow, basically because of policy biases for themanufacturing sector in urban areas and the skewed income dis-tribution in rural areas. Various agrarian reform programs wereimplemented but were mostly unsuccessful.

The current thrust of the Arroyo administration is to fullyimplement the Agricultural and Fisheries Modernization Act


(AFMA), which it hopes could sustain economic growth in thenext few years despite the slowdown of the global economy afterthe September 11 terrorist attacks. It is noteworthy that the sectorsgrowth was instrumental in higher-than-expected performance ofthe Philippine economy in 2001.

Rural credit markets. In the context of agricultural sector,the credit market is significant because access to inputs is highlycontingent on the ability of the farmer to meet his cash flow re-quirements in the production cycle. In this respect, the Journal hasfeatured various studies examining both the formal and informallending markets in the rural areas. Over the past three decades,the formal sector (i.e., commercial and rural banks) has been docu-mented to provide only a small portion of the credit needs of farm-ers, who have mostly depended on informal creditors. This wasbasically due to the ability and flexibility of such lenders to serviceborrowers in their areas of work and because of the quick process-ing of loan releases.

The government has consistently tried to remedy the situa-tion through subsidized and directed credit policies. However asTolentino (1988) asserted, governments good intentions are notenough and are often negated by the adverse effects of the pro-grams. Teh (1991) noted that the massive failure of rural banksand the high default rates encountered in the supervised creditprograms signified the inefficiency and unsustainability of suchpolicies. Only a minor percentage of small farmers were reachedby these programs. Such credit support was not sustained on along-term basis. At the same time, a significant part of the subsidyimplicit in these programs was captured by big rather than smallfarmers.

Tolentino (1988) specifically mentioned that the critical ele-ments which enable and attract finance to agriculture were oftennot found in the financial system but in the infrastructure, tradeand monetary systems. Floro (1987) added that the failure andlagged growth of rural financial markets was the result of both


government policies and the prevailing economic environment.Farmers typically faced high input but low output prices, usuallydid not own the land they till, obtained poor and unstable yields,earned very low incomes and had limited access to governmentservices and incomes. These were also exacerbated by bad infra-structure (roads, irrigation, post-harvest facilities) and decliningterms of trade and thus made agricultural lending a costly andrisky enterprise.

Floro (1987) suggested key policy reforms, which includedless loan targeting, removal of credit subsidies and more lenientbank entry to improve the operations of rural financial markets.Government can also increase competition by enhancing the for-mation of credit cooperatives among farmers. In the long run, how-ever, credit programs must be accompanied by policies that in-crease incomes and the economic viability of rural population, suchas land reform, market-oriented pricing policy and focused infra-structure development.

The PJD has extensively examined the rural credit marketwith the following articles: Javier (1979) focused on the years 1960-1975; Llanto (1989) analyzed asymmetric information in ruralcredit markets; Geron (1989) expounded on farmer behavior ininterlinked credit markets; Untalan and Cuevas (1989) estimatedtransaction costs and examined the viability of rural financial in-termediaries (i.e., commercial and rural banks); Bautista (1991)focused on the impact of public policies on informal credit mar-kets; and Teh (1991) reviewed the literature on credit markets andits links with labor arrangements, land use and marketing servicesas a response to market imperfections in an agrarian economy.

Rice and food security. One of the more interesting issuesrelated to agricultural development is food security. It should beemphasized, though, that one of the major aspects of food secu-rity is the self-reliance and autonomy of a country, particularly interms of decisionmaking on food production, importation, distri-bution and allocation. David and Balisacan (1995) observed that


the Philippine government and the public in general have increas-ingly accepted the fact that a more open economy would best servethe welfare of the Filipino people. Hence food security concernsmay be better addressed by being self-reliantcapable of purchas-ing rice anywhere rather than being self-sufficient at lower levelsof welfare. This was because of the decreasing real world price ofrice (e.g., RP rice is priced at around P20 a kilo compared toVietnams P6.50 and Thailands P7.00).

David and Balisacan added that the government must re-think the role of the National Food Authority (NFA) as the agencycontinues to lose millions of pesos and that it should correct theunderinvestment in rice research. Today, the currentadministrations strategy to become competitive in the global ricemarket is the production of hybrid rice.

Another important issue to consider is the role of traders inthe determination of rice prices in the market. It is a common per-ception that traders maintain a cartel to create market power inthe rice market. However, a study by Reeder (2000) did not con-firm this market power and found that high-end prices for con-sumers were due to the high cost of production. Trade policy isalso crucial to food security. David (1997) asserted that the highlyprotectionist position regarding tariffs on sensitive agriculturalcommodities was not politically tenable at the current level of eco-nomic development. Excessive protection on selected importablefood commodities would raise the degree of peso overvaluation(aside from increased prices), which hurts many poor farmersgrowing exportable commodities. Such a policy is anti-poor be-cause the majority of the poor in urban and rural areas are netbuyers of food and depend on employment in livestock and foodprocessing, where corn and sugar are major inputs.

David (1999) enumerated further several constraints to foodsecurity. She explained that although public expenditure for agri-culture recovered in the late 80s, much of the recovery was allo-cated for redistributive purposes (agrarian reform and market sub-


sidies like NFA) and the strengthening of natural resource andenvironmental management rather than for long-term productiv-ity-enhancing investments to reverse the declining competitive ad-vantage of the agricultural sector. She added that the problem tran-scends the level of public expenditure and its allocation. Equallysignificant are the inefficiencies caused by poor choices of programs,faulty budgetary processes and planning approach, weaknessesin the bureaucracy in terms of organizational structure, incentiveproblems, transitional difficulties with devolution and instabilityin leadership. Weak links between research and extension alsofailed to promote technological developments in key commodities.Moreover, institutional and political factors like weak planning,and excessive graft and corruption reduced the effectiveness ofpublic investments in market and irrigation infrastructure. Finally,existing property rights policies like agrarian reform hindered landmarket transactions and lowered incentives for long-term invest-ments, thus eroding the collateral value of land. All have acceler-ated land conversions from agricultural to nonagricultural uses.

Poverty: Definition, Measurement and ApproachesOne of the most persistent problems in Philippine develop-

ment is the high incidence of poverty. Past administrations hadinvariably pledged to focus their strategy on the alleviation of pov-erty and eventual lowering of the number of people living belowthe poverty thresholds. Yet the Philippine poverty problem hasremained because of the failure of the economy to sustain growthover the last three decades, unchecked high population growthrates, high income inequality, inadequate and poor targeting andthe lack of participation of the poor themselves in crafting policiesand programs for them. Today, multilateral institutions like theWorld Bank, Asian Development Bank and the United NationsDevelopment Program (UNDP) have increased their allocation ofresources for such programs. There is also a growing consensusthat poverty must be tackled from a multidimensional and


multistakeholder approach. More importantly, the poor must par-ticipate in any program aimed to help them rise above their situa-tion. This has been largely verified by a big study of the WorldBank consulting and listening to the voices of the poor.

Alburo (1979) early on already captured the real definitionof poverty. Saying poverty is multifaceted, he characterized thevarious approaches to poverty definition (a) as measuring the ex-tent of poverty and defining a base for target groups; (b) as indi-cating the relative magnitude of what needs to be accomplishedand the needed resources available for poverty programs; and (c)where poor social groups can be identified, as promulgating vari-ous types of programs. However, he asserted that the definitionalapproach was fraught with several weaknesses: (a) poverty in sucha context was defined in a normative sense (i.e., determination ofthe threshold); (b) the index construction for poverty was ambigu-ous because of the classic aggregation problem; (c) measurementproblems were formidable (e.g., home-produced goods were nottaken into account in consumption expenditures); (d) units of analy-sis were not consistent as some measures were macro while otherscapture individual or household states; and (e) areas for policyprescriptions following the definitions were limited, general andoften misleading, since the poverty gap (absolute or relative) canimply a spectrum of general policy options within an economicmilieu.

He concluded that poverty is relative and that the above defi-nitions do not, in any rigorous way, indicate poverty as being ex-perienced by those who suffer from it and for whom relevant pro-grams are intended. Alburo (1979) recommended a track that as-sumes that poverty is an all-encompassing state, multidimensionaland prone to many interpretations likely to be far removed fromthe behavior of those who are actually poor. The task therefore isto measure household perception of poverty and, with this vari-able, the various dimensions of povertyeconomic, social culturalor political. The perception may be on the basis of scale or there


may be simply perception or nonperception of poverty. The mea-sures of the dimensions then define commonalities of characteris-tics among those who consider themselves poor. Consequently,the method and analysis could discern the significance of the di-mensions to the poverty scale of a common set of households.

Bantilans (1992) empirical approach responded to Alburoschallenge of measuring poverty in its various dimensions. Sheutilized the fuzzy subset theory, which allowed for partial mem-bership values of 0 and 1 for classified members of the set. Thetheory of fuzzy subset provided a new approach to the use of tra-ditional economic variables such as income or expenditure to de-rive new measure of poverty. The approach can readily use theextensive information contained in the set of standard of livingindicators. Instead of the all-or-nothing membership to the poorset, it allows for partial membership whereby one does away withthe conventional definition of the poverty line and takes into ac-count the gradual transition from poverty to the state of wealth.In the incorporation of the information from the set of categoricalvariables available from the household surveys, it takes into ac-count the multidimensionality of poverty.

Balisacan (1992) also criticized current methods of measure-ment. According to the paper, threshold analysis (which is thetypical method used) for the average size of households was defi-cient because it ignored differences in family size and compositionas well as scale economies in producing and consuming house-hold goods and services, thereby misrepresenting aggregate pov-erty. The use of properly constructed household equivalence scaleswas appropriate for aggregate poverty assessment. An equivalencescale indicates at reference prices the cost differential for a house-hold due to demographic characteristics (e.g., family size, age, sexof members) and other relevant household attributes (e.g., occu-pation, education and region of residence) to reach welfare of ref-erence household. Viewed as a true cost of living index, it repre-sents in one summary measure the changing needs of a family as itexpands or changes attributes.


The PJDs future issues must scrutinize current efforts at pov-erty alleviation and eradication, especially since the Macapagal-Arroyo administration recently embarked on important programs(e.g., the KALAHI) targeting marginalized sectors in the urbanand rural areas. Insightful articles, as exemplified by the above,can contribute greatly to the continuing fight against poverty. Then,too, current government efforts may well reflect the findings andreflections of the earlier studies.

Microfinance and cooperatives as means of poverty allevia-tion. Large financial institutions like commercial banks would notrisk lending money to the poor. This is basically due to informa-tion problems, high credit risk perception, lack of acceptable col-lateral and high transaction costs in processing small loans. Thegovernment has responded by establishing a number of credit pro-grams aimed at providing the poor with access to financial ser-vices. The National Credit Council reports as many as 111 creditprograms, of which 13 are specifically designed for the extremelypoor. Microfinance institutions (MFIs) such as credit NGOs, ruralbanks and credit unions/cooperatives are private sector initiativesto give credit to the poor.

Llanto et al. (1997) assessed the capacity and performanceof these MFIs. Their study showed that MFIs had weak institu-tional capacity, lacked a viable and extensive delivery system, hada small financial base and huge investments in training clientsthat hampered their attempts to reach a greater number of thepoor. In the short run, the MFIs may be able to expand their presentreach but may find it difficult in the long term, since most of themare not viable and financially sustainable institutions. Their policyrecommendation was to transform credit NGOs into full-fledgedfinancial institutions or invest in or organize such institutions, ex-ternalize training costs, and for government to allocate funds fortraining and capacity building of existing MFIs.

Hossain and Diaz (1997) evaluated a specific MFIaGrameen bank replication of the Center for Agriculture and RuralDevelopment (CARD)a nongovernment organization. They used


primary (through a survey) and secondary data to compare oldand new borrowers and assess the impact of CARDs program onthe poor clients. The basic features of the Grameen bank programinclude targeting specifically poor women, organizing borrowersinto small homogeneous groups to develop solidarity and peer pres-sure to ensure effective utilization and recovery of loans, collect-ing the principal in small regular weekly installments so that re-payment does not become a burden for low-income households,and developing collective funds with compulsory savings fromborrowers for their mutual benefit.

As of March 1997, CARD had already mobilized 13 brancheswith over 7,000 members, and disbursed P82.3 million, of which76 percent has been recovered. Savings accumulated by the poorwomen clients had already reached P11 million. The Hossain andDiaz survey of 133 borrowers showed that CARD was successfulin reaching low-income households with credit. Seventy percentof its borrowers had no access to land and had very poor housingworth less than P25 thousand. The average labor productivity inenterprises financed with loan was P107 per day, 34 percent higherthan the market wage of P80. The rate of return on capital was117 percent compared to the 46 percent rate interest charged byCARD on the outstanding loan. These enterprises, mostly infor-mal ones, added P2,240 per month to household income, whichcomprised 25 percent of the total income of borrowing households.Employment, income and labor productivity increased with thenumber of repeat loans taken from CARD.

However, despite the relatively high rate of interest chargedby CARD, it was not able to recover its operating expenses be-cause of the high costs of operation (i.e., various transactions costs,including social preparation). According to the study economiesof scale in MFI operations could only be sustainable until a branchreached P3 million worth of outstanding loans. CARD eventuallyorganized its own rural bank as was recommended in the Llantostudy. Today, MFIs are proving to be alternative channels to aid


the poor in their quest for better lives. However, there are still veryfew MFIs like CARD that have reached a level of operation whereeconomies of scale can be reaped. Government must continue tosupport and encourage institutions like CARD in their fight againstpoverty.

Human Capital and Resource IssuesHuman capital is one of the key factors for sustained eco-

nomic growth in the long run. Good health, proper nutrition, ad-equate training and the right incentives (i.e., wages) contribute toincreased labor productivity, which in turn stimulates economicgrowth. It is no wonder that the PJD has devoted a considerablenumber of articles to human capital development and related is-sues.

Health and nutrition. Pante (1990) provided an overview ofhealth policy research and development in the Philippines whichincludes an overview of health situation. Over a period of 20 years(i.e., 1970-1990), the Philippines achieved significant improvementsin overall health statuscrude death rate per 1000 declined from11.8 in 1970 to 7.8 in 1986. Life expectancy rose from 58.1 to 63.4.Infant mortality rate went down from 75/1000 in 1975 to 55.3 in1986. Pante pointed out that any program for health policy re-search must address the questions involving priority setting, re-search management and coordination, dissemination and utiliza-tion of results, capacity building, database for research fundingand the role of donors.

Alba and Orbeta (1998) examined the micro impact on nu-trition of macroeconomic policy change by estimating a system offood demand equations using nationally representative survey data.The estimates were then utilized to set up a model that used priceand income changes to determine the impact of macro policy onthe nutritional status of households. Using the tariff reform pro-gram implemented between 1988 and 1992 as policy change, thestudy was able to show a more pronounced impact on nutrition as


compared to income. According to the authors, their study en-riched the results of computable general equilibrium (CGE) simu-lations, which typically ended at the impact of policy shifts onincome distribution.

Labor and the minimum wage. Minimum wage increase hasbeen the perennial advocacy issue of organized labor in the Philip-pines. However, economists have pointed out that mandated in-creases in the wage rates may cause unemployment in the labormarket. Armas (1976 and 1978) examined the impact of minimumwages at the firm level (i.e., in Philpack, a pineapple cannery andthe industry as a whole). Minimum wage increase had, ceteris pari-bus, caused wage disequilibrium, which in turn applied substan-tial pressure to affect endogenous factors in Philpack. He also foundthat it greatly reduced employment in the organized manufactur-ing industries. Moreover, based on the estimates of labor demandelasticities, he discovered that the higher the legal minimum wage,the greater the disemployment of industrial workers.

Brooks (2002) did the most recent study on the impact ofminimum wages in the Philippines. His results showed that a 10percent increase in the real minimum wage was correlated with a5 to 6 percent decline in aggregate employment in the 90s. Hisanalysis by sector, however, suggested a weaker relationship withemployment in agriculture and services more sensitive to the mini-mum wage than employment in the industry sector. The usualdata and measurement problems, however, persisted in estimat-ing the impact of minimum wage on employment. To date, dataon wages in the country over time remain incomplete and incon-sistent.

While current government policy veers away from a nationalminimum wage, there is still regional wage fixing. Compliance withminimum wage orders is also low at 75 percent (2000 data fromBLES). Further contributions on the viability of regional wage fix-ing enrich discussions in this area.


Education. Human capital investments through educationare important for individuals to increase productivity and incomes.In terms of the whole economy, workforce skills determine thesustainability of economic growth. For example, a study showedthat the initial conditions of Philippine and Korea were similar inthe 60s, but the latter developed more rapidly than the former.The study noted that the major difference lay in human capitalinvestments (Benabou 1996). In the Philippines, various studieshave already been made examining the deterioration of the qual-ity of education in the past several years and the misallocation ofresources from primary and secondary education to tertiary edu-cation (i.e., the numerous state universities and colleges). In addi-tion, systemic corruption in the Department of Education has fur-ther decreased resources for the provision of public education.Whats more, the governments political will to fully implementreforms has been insufficient over the years.

The PJD has devoted articles to the analysis of tertiary edu-cation in the country. Tan (1976) looked at discrimination in pub-lic university admission. Her study illustrated that UP educationwas biased for students who came from a fairly select group offamilies (i.e., those in the upper-income brackets of urban centers).Children from poorer families who graduated from lower-qualityhigh schools were excluded from the university. The author dis-cussed the possibility of proper pricing of public tertiary educationbecause of the uneven distribution of subsidies at this level amongrecipients. She suggested charging the market price for tuition butthat the state should instead offer student loans and assistance.

Canlas (1987) studied the various issues in the economics oftertiary education, which included (a) the lack of capital marketsdue to the presence of imperfect/asymmetric information on theborrowers (risk type and future productivity and wages) and be-cause acquired skills cannot be used as collateral; (b) equityconsiderations legitimization of government intervention and im-provement of repayment rates if credit subsidies are given to de-


serving students mainly due through its police power; and (c)proper pricing of higher education in state universities, as this haseffects on the wages of professors who are lost to private universi-ties or the business sector.

Population and demography. Current annual populationgrowth rate of 2.2 percent remains high, putting pressure on theeconomys ability to absorb an increasing labor force. Herrin andCostello (1998) analyzed the determinants of population growthand recommended key policy responses. Their analysis demon-strated that by 2020, out of the increase in population from the1995 level of 37.1 million, 5.8 million will have been due to un-wanted fertility, 6.7 million to high desired family size and 24.6million to population momentum. By 2040, the increase in popu-lation from 1995 will have reached 57.8 million, 9.3 million of whichis attributed to unwanted fertility, 10.9 million to family size per-sistence and 37.6 million to population momentum.

The policy implications are as follows: (a) efforts are requiredto assist couples to eliminate unwanted fertility and to achieve theirfertility goals in ways that are safe, legal, affordable and consis-tent with their moral convictions and religious beliefs; (b) with re-gard to the desired high family size (i.e., wanted fertility greaterthan replacement rate), efforts are needed to modify fertility pref-erences of couples by creating socio-economic conditions that fa-vor small family size and greater human capital investment perchild; and (c) there is a need to reduce momentum by delayingmarriage or child bearing and crafting a responsive and high-qual-ity family planning program, which could make birth spacing ef-fective.

Other important articles in the Journal were studies by Panteand Morales (1980), which provided an overview of Philippinepopulation policy and development planning experience outlin-ing past, current and planned efforts designed to strengthen link-ages between development plans and policies. Earlier micro stud-ies were those of Boullier (1977), which examined the effect of chil-


dren in Laguna on parents allocation of time; Paqueo and Ange-les (1979), which scrutinized labor force participation rates ofmarried women and confirmed the finding of Encarnacion thatthere was a threshold educationmarginal effect of educationbelow elementary grade was negative while above elementarygrade was positive; and Paqueo and Fernandez (1979), which testeda disequilibrium model of fertility behavior. Costello (1988) gave ageneral survey of mortality and health issues, which included theimpact of social and economic variables (e.g., residence, social class,role of women) on infant and childhood mortality/morbidity andvarious analyses of proximate mortality factors (e.g., maternal fac-tors-age, parity, environmental variableswater, sanitation, acci-dents and injuries, nutrition), which had more direct impact thanthe former. A 1996 second semester special issue of the PJD wasdevoted to the population, development and environment nexus.One of the key articles was Orbeta (1996), which reviewed vari-ous models that linked population, development and the environ-ment.

Trade and InvestmentsEconomic cooperation and interdependence. Increased glo-

balization has made it imperative for developing nations like thePhilippines to intensify their efforts toward trade expansion andto attract both local and foreign investors. Sicat (1976) early onobserved that an independent country has to play a continuousgame of interaction with foreign elements (traders, investors,donors) and that the willingness to play this strong game of inter-action would eventually prepare a country for greater economicinterdependence in the long run. This economic interdependencehas necessitated greater regional cooperation.

Garcia (1983) foresaw that based on the available evidenceduring that time, regional cooperation taking place in the Asia-Pacific region may in fact be the strongest in the world. He evenmentioned that then President Marcos suggested the creation of

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an Asia-Pacific forum or an Asian and Pacific economic system,where national leaders may exchange ideas and approve regionalpolicy initiatives toward development. Definitely this is what thepresent Asia-Pacific Economic Cooperation is. The PJD devotedits 1996 first semester special issue to APEC. Articles in this issueincluded an elaboration of an Asia-Pacific model of developmentcooperation (Foundation for Development Cooperation 1996), la-bor migration and APEC (Amjad 1996), macroeconomic coordi-nation (Paderanga 1996), Asian and western values and implica-tions on APEC community-building process (Estanislao 1996), USinterests in APEC (Petri and Plummer 1996), cultural aspects oftrade dispute resolution with China (Potter 1996) and the limita-tions of open regionalism (Oxley 1996).

Intal and Austria (2000) examined the current state of APECand recommended measures to help make it move forward. Theauthors suggested that APEC must move beyond trade liberaliza-tion and enhance its trade facilitation and ECOTECH agenda. Theyalso challenged APEC to build and deepen a sense of communityand common purpose as the final push for trade and investmentliberalization as well as for economic integration requires a deepsense of community among leaders and peoples in the region. Theyalso recommended that APEC focus on strengthening capacity forimproved governance and to provide more opportunities for di-rect, face-to-face interaction among people in the region such asjoint cooperation in common fishing areas and oceans. Other stud-ies which looked at regional cooperation included those of ASEAN(see discussion below), GATT-WTO (Cororaton 1997) and the Eu-ropean Community (Aldaba 1992).

Trade issues. Tan (1978) analyzed the structure of protec-tion in the Philippines in 1974 using the effective protection rate(EPR) framework, which measured the joint effect of tariffs andsimilar instruments on both the outputs and inputs of an indus-trial activity. Her EPR results showed that the protective structurepenalized a large number of export-oriented industries that con-


tinued to survive because they were efficient. Primary and agri-culture sectors had the lowest EPRs while domestic-oriented manu-facturing industries received the highest protection.

Yap (1997) determined the impact of tariff reduction on gov-ernment deficit and trade balance using a three-gap model (i.e.,savings, foreign exchange and fiscal gaps). A reduction in tariffswould lead to an increase in import demand; worsening the tradedeficit and putting pressure on the exchange rate. The increase inimport volume would not compensate for the decline in tariffs andwould result in a deterioration of the fiscal balance. Yap cautionedpolicymakers about the impact of microeconomic reform on mac-roeconomic stability. He noted that measures such as increasingtax effort and improving tax administration would be necessaryto compensate for the reduction in tariff revenue. He also pointedout the important role that exchange rate policy would play fol-lowing tariff reduction as well as the need for a more coherentprogram to attract foreign direct investment flows.

Cabalu (1995) estimated the effects of the removal of theMulti-Fiber Arrangement (MFA) quota restrictions by developedcountries on clothing exports of developing countries. Based on astatic, partial equilibrium model of global clothing trade, the re-sults showed that the phaseout of the MFA would lead to higherwelfare gains for the industrial countries (MFA importing coun-tries like the US and EC 12) than those for MFA exporting coun-tries such as the NIEs, China and the Philippines. Among MFAexporting countries, Hong Kong, South Korea and Taiwan wouldhave the highest gains along with China and other Asean coun-tries. The Philippines would gain $0.06 billion, contrary to the com-mon notion that the country would lose its market share with theabolition of the MFA. Though the benefits are small relative to ourcompetitors, the pressure from competition is expected to makeFilipino exporters more competitive.

Austria (2001) stated that the policy reforms implementedin the last two decades promoted competition and resulted in a


better allocation of resources and improved competitiveness of Phil-ippine industries. These reforms consisted of trade liberalizationand deregulation/privatization in banking, insurance, telecommu-nications, maritime industry, civil aviation, energy, and water. Withimproved competitiveness, the country was able to participate inregional trading arrangements such as AFTA and APEC as wellas in multilateral arrangements like the WTO. The major challengefacing the country is how to deepen its participation and reap thefull benefits from economic integration. Austria identified compe-tition policy as one important area that needs to be pursued tofurther improve our global competitiveness.

Medalla, de Dios and Aldaba (1993) showed that the homeconsumption value (HCV) as a customs valuation base distortedthe countrys protection structure and had a negative effect onforeign direct investment flow. Medalla et al. estimated the rev-enue impact of the HCV system and found that it did not generatelarge additional revenues. The authors urged the government toshift to the GATT transactions value (TV) system, as this wouldpromote trade facilitation, remove uncertainties and arbitrariness,and reduce the transaction costs of importing. They found thatthe estimated revenue losses arising from the shift from HCV toTV were not huge as feared, but these were in fact small and wouldonly be incurred in the short run.

Medalla and Castro (2000) updated the 1993 HCV study us-ing more recent Societe Generale de Surveillance data for the years1994 to 1999. Their results showed that trade liberalization low-ered the incidence of underinvoicing. Like the 1993 study, Medallaand Castros 2000 estimated the revenue impact of shifting fromHCV to TV system and found that the decline in government rev-enues as a result of the valuation change would be minimal. Theauthors argued that the GATT valuation system would encouragetrade facilitation, provide a clearer basis in determining dutiablebase and increase government revenues in the long run, amongothers.


Foreign direct investment. With a very low savings rate vis-a-vis our ASEAN neighbors, the Philippines must be able to at-tract foreign direct investment (FDI) in its shores. The Journal hasprovided articles and papers adequately examining issues relatedto this. Young looked at the determinants of US FDI flows to South-east Asian countries by applying ordinary least squares regressiontechnique to a pooled data set for the years 1960 to 1976. He foundthat US FDI flows were motivated by profits, cheap labor and tar-iff protection but were negatively related to BOP problems. Hefound no statistical evidence to support the hypothesis that mar-ket size, growth reserves, or inflation was linked to FDI. He alsodid not find evidence proving that economic ties between host andinvesting countries would induce FDI flows. He concluded that toattract FDI, the following prerequisites were needed: adequatesupply of trained labor at relatively low real wages, presence ofnecessary infrastructure, and other policies to enhance profit op-portunities and liberal policies affecting profit remittances.

Herrin and Pernia (1987) examined the factors affecting thelocation decision of local and foreign firms through a sample sur-vey of 100 companies. They showed that the most critical determi-nants were largely of the social overhead capital type such as ac-cess or transport, power, information and communication, andphysical plant requirements. Cheap labor and direct governmentintervention were not among the critical considerations affectingfirm location choice. The authors pointed out that the basic socialoverhead capital must be in place before direct government influ-ences could work. They also noted that in designing polices to in-fluence the location of firms, policymakers must consider not onlythe factors indicated above but also the relevant industrial struc-ture.

Austria (1998) assessed the FDI trends in the Philippines aswell as the effectiveness of the Philippine investment incentive sys-tem. While total FDI grew during the period 1990-1997, the Phil-ippines continued to have the smallest share when compared with

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other Asean countries. Austria pointed out the need to design auniversal set of incentives to be applied to firms locating inside oroutside export processing zones. She also noted the need to review(a) the 1987 Omnibus Investments Code, because it favored do-mestic-oriented industries and promoted capital intensity amongthese industries; and (b) duty and tax concessions under the bondedmanufacturing warehouse scheme and duty drawback system,which were found to be generally ineffective due to their bureau-cratic complexities and costly delays imposed on exporters.

Industry Competition and CompetitivenessIndustrial development in the Philippines is often hampered

by conditions that make firms uncompetitive in the market thatthey are engaged in. Some industries did not have adequate incen-tives to modernize and improve productivity, as profit marginswere maintained only because of the high protection accordedthem. In addition, industrialists and entrepreneurs often com-plained about the high costs of doing business in the Philippinesvis--vis its competitor countries.

Philippine industrial development in the 80s. Follosco (1982)enumerated internal problems plaguing Philippine industry in the80s: (a) inadequate capacity utilization; (b) financial inadequacy;(c) poor technology; (d) lack of managerial skills; and (e) poor pro-ductivity. External problems that affect growth and expansion ofthe various sectors include (a) tariff protection; (b) custom admin-istration; (c) credit; (d) graft and corruption; (e) infrastructure suchas power, communication and transportation; and f) governmentbureaucracy. Note that many of these problems remain today. Dur-ing that time also, he proposed the review of the feasibility of threeof 11 major industrial projects of Marcos (i.e., heavy engineeringindustries, integrated steel mill and the petrochemical complex).Today the survival of these last two industries is definitely in doubt.

Industry concentration. Philippine industries have been char-acterized by high concentration and market power. According to

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the World Bank (2000), in a 1997 survey, 216 of the 1,000 largestcorporations (ranked by sales) belonged to only 39 corporate groupsand accounted for 51 percent of total sales of the largest Philip-pine-owned corporations (757 of the 1,000). Thus, while trade lib-eralization has been a strategy to increase competitiveness, it hasnot been relatively sufficient. Competition policy, a current prior-ity research agenda of PIDS, is now viewed as a key mechanism topromote efficiency and competitiveness in Philippine industry.

Saldaa (1990) examined cartel-like behavior and rent seek-ing (lobbying for protection) in the flour milling industry. He ob-served systematic adverse effects on consumer welfare and cer-tain observable patterns of cooperation, low production capacitiesand past industry pronouncements abetted by government inter-ventions. Sanchez (1990) compared the textile industry in the Phil-ippines and Thailand. Thailands textile industry performed bet-ter in terms of output, export and TFP growth. Technological dif-ferences were the major contributory factors to the differential inproductivity performance. Thailand achieved this through jointventures with foreign inventors while the Philippine textile indus-try benefited little from the infusion of international expertise. Inaddition, the Philippine textile industry was protected very heavilyin the past.

Digal (2001) examined the structure of the retail food indus-try and analyzed the supply and demand factors and governmentpolicy affecting the industry. He argued that while there was someevidence supporting allegation of market power in the retailingand manufacturing sectors, it appeared insufficient. The top fourfirms in food manufacturing accounted for 63 percent of total rev-enues in 1978 and about 72 percent in 1994.

Financial and Monetary ReformsFinancial and monetary reforms are crucial to the efficient

functioning of the real sector. According to the World Bank (2000),the financial markets facilitate the pooling of savings and help cre-

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ate a more efficient allocation of these savings to potential invest-ments as banks and other financial players acquire specialized skillsand information in evaluating the risks and returns of alternativeinstruments and reduce costs of intermediation. Intal and Llanto(1998) distilled the key lessons from the financial and monetaryreforms implemented in the period 1980-1997:

a) A stable macroeconomy in recent years with implicitlow inflation expectations has encouraged the expan-sion of formal financial institutions deeper into thecountryside and into the urban informal sector, therebyproviding a stronger competitive pressure vis--vis in-formal financial intermediaries such as money lend-ers.

b) Prudential regulation and supervision is central to therobust growth of financial sector.

c) Capital flows can exacerbate weaknesses in the mac-roeconomic regime and in prudential regulations andsupervision.

d) Large capital flows and the attendant high current ac-count deficits and/or fast rising level of internationalreserves in recipient countries under an open capitalaccount create significant macroeconomic policy chal-lenges and rising credit risks.

e) Financial reforms during the past one and a half de-cades together with overall reforms in the economy andthe strengthening of macroeconomic fundamentals inthe country have helped strengthened the financialsector.

Key recommendations proposed by the paper include:a) Strengthening prudential regulation and supervision

and the implementation of comprehensive risk-basedassessment and supervision, which is not limited tocredit risk;


b) Strengthening regulatory institutions, especially the BSP;c) Reviewing the policy on capital accounts and foreign

borrowing; andd) Greater contestability in the financial market.Other important studies on the financial and monetary sec-

tor included Lamberte (1984), which examined the controllabilityof monetary aggregates and found that the aggregates that arenot controllable (i.e., deposit liabilities of nondeposit money banks)were correlated with economic activity; Sicat (1984), which dis-cussed the role of offshore banking in the Philippine economy;Lamberte (1985), which highlighted the lessons of financial liber-alization; and Lamberte (1993), which examined the impact of in-terest rate liberalization on the banks profit margin, given entryconstraints and the ineffectiveness of the Central Bank. In 1993,the Central Bank was rehabilitated into the new Bangko Sentralng Pilipinas through a new law, resulting in improved bankingregulation.

As for management of capital flows, Lamberte (1995) calledfor a relaxation of monetary policy to accommodate additionaldemand for money arising from foreign exchange inflows, whileBoyce and Zarsky (1988) estimated capital flight from the Philip-pines and found that in the eight years preceeding the 1970 for-eign exchange crisis, it amounted to $776 million ($4.7 billion us-ing the 1986 exchange rate). However, it peaked in real terms inthe 1975-1976 ($4.3 billion) and again 1981-1982 ($7.5 billion). Yapand Reyes (1993) performed a cointegration analysis of money andprices and found that there was no causality between money andprices in the Philippines during 1981-1992. According to them,this can be explained by the highly erratic political and economicenvironment during that time.

Science and TechnologyIn the second semester 1989, a special issue of PJD featured

Science and Technology Policies in the Philippines, a PIDS-De-


partment of Science and Science and Technology (DOST) work-shop. Then DOST Secretary Follosco emphasized that science andtechnology (S&T) was required in three strategies to transform thePhilippines into an NIC:

a) the modernization of all productive sectors in theeconomy and to increase productivity levels;

b) the enhancement of R&D capability of existing insti-tutes and its contribution to economic productivity; and

c) the build-up of the Philippine infrastructure for S&Taccompanied by efforts to increase labor productivity

Padolina (1991) recommended that the country should veeraway from looking at S&T merely as a sector and instead integratethe S&T component in each of the sectoral plans contained in theoverall Philippine development plans. He added that academe isin the best position to undertake long-term strategic studies be-cause of its inherent structure and opportunities available in theuniversity which lend support to this type of activity. There mustalso be greater academe-private sector collaboration in promotingS&T.

The collaboration between the private sector and academeshould catalyze the number of inventions and innovations in thecountry. Medalla, Mikkelsen and Evenson (1982) assessed inven-tions in RP industry from 1967 to 1980, which showed a similarpattern characterizing the advanced developing country or thenear NIC country. It appeared to rank ahead of most other de-veloping countries and probably ahead of most slow-growing semi-industrialized countries in terms of domestic inventions. The dataon Philippine invention suggested a fair degree of success in stimu-lating indigenous invention. On the whole, according to the au-thors, the state of invention in Philippine industry seemed to beconsistent with its state of development. Or put it another way,inventive activity did not appear to be a severe limiting factor pre-venting the Philippines from moving to an open export-based rapidgrowth phase. They noted that other policy changes would be re-


quired to achieve this growth, although a more aggressive pro-gram to stimulate invention would also contribute to this goal. Itwould be certainly interesting if an updated study could be madeand published in the future issues of the PJD.

One important factor in the promotion of S&T is the protec-tion of Intellectual Property Rights (IPR). The PJD dedicated onespecial issue to cover the workshop on Intellectual Property RightsPolicy Issues and Perspectives in December 1991. In that work-shop, it was asserted that the Philippine position on IPR was thatnot only should owners be remunerated for their contribution toS&T; the public should also benefit from such products. In bio-technology, the IPR code should be flexible enough so that the coun-try can enjoy the scientific techniques and know-how of advancednations in return for the Philippines rich supply of genetic re-sources.

Ancog (1991) discussed how IPR can be a dividing factorbetween developing and developed nations. The correlation of IPRprotection with trade-related matters continues to be one of theburning issues because developing countries need more conces-sions in developed nations IPR system to gain access to the latterstechnologies. She warned that developing countries like the Phil-ippines should monitor developments in patenting, especially inthe field of biotechnology in advanced nations, because these arethe principal sources of high biotechnology R&D. According toAncog (1991) sans a reasonable IPR protection, it was almost aforegone conclusion that these nations would not share the fruitsof their R&D efforts. She added that the scope and coverage of theexisting IPR laws must be redefined to keep pace with moderntechnological trends.

Technological progress is often measured by economiststhrough what is called as total factor productivity (TFP). Cororatonand Associates (1995), using both the growth accounting methodand stochastic frontier approach, attempted to measure TFP growth.Their results showed a drastic drop in the productivity performance


of the manufacturing sector. The number of industries with TFPnegative growth increased especially in the 80s and 90s, whichmay be due to structural and economic adjustment policies imple-mented during those times. In addition, they think that FDI hasnot been contributing to technical progress and that technicalprogress, which in return may require a nonneutral policy becauseof the abundance of market failure in the technology market.

Technological changes are hastened through investments inR&D by both the public and private sectors. Cororaton (1999) ob-served that while rates of return on R&D investments are high,there are indications that the Philippines has been underinvestingin R&D. It ranked very low in two broad indicators of R&Dexpenditure on R&D and number of scientists and engineers. Datafrom the United Nations Educational, Scientific and Cultural Or-ganization showed that RP ranked 73/91 in terms of scientistsand engineers with 152 per million, and in R&D expenditure at60/91, spending only 2 percent of GNP. Based on his computationof a TFP regression of 99 countries, the R&D expenditure wouldhave to increase by 5.778 percent for Philippine TFP to reach itsfrontier (or full potential) of a total of 7.445 percent of GNP, orabout 18.8 billion pesos. A gap of 197 scientists per million mustalso be filled up.

Mathematical Models and Statistical TechniquesEffective development planning and policymaking are con-

tingent on the availability and reliability of data and the sound-ness of analytical methodologies and techniques, including eco-nomic empirical models. The PJD as a technical journal has es-poused among its contributors the utilization of such analyticaltools in understanding development issues. At the same time, ithas welcomed contributions that upgrade and refine current sta-tistics and techniques and that try to apply mathematical modelsto Philippine developmental issues.


Social accounting matrix. The use of the social accountingmatrix (SAM) for development planning in the Philippines firstsaw print in the PJD. Bull (1977) explained the concept of SAM,why it might be useful, and how it might be constructed and usedfor projection purposes in the Philippines. A SAM is a frameworkwhere the disaggregated interrelationships in the economy can berecorded. It was originally developed to present the national ac-counts (i.e., the record of the sources and disposal of the nationalincome) in a form which would permit the exploration of the im-plications for production, consumption, investment, balance oftrade, prices, wages and employment of alternative growth possi-bilities over a given planning period. SAM can be used for devel-opment planning and policy analysis (evaluating alternative poli-cies). It could be set up in any form considered appropriate by thedecisionmakers, the planners and statisticians. Because of the po-tential size of SAM, it may be a great strain on a countrys statisti-cal resources to meet data requirements, but such limitation canbe outweighed by the benefits it brings. Also, if the national ac-counts were built up using the SAM framework, they could becross-checked against the conventional income, expenditure andoutput approaches to estimating national accounts.

SAMs were constructed for the Philippine economy for 1974,1979 and 1987. The more aggregate nature of the accounts led tothe application of the label Macroeconomic SAM Framework(MSAF). Vos (1991) reported the construction method of theMSAF in the Philippines for 1987 and its relation to existing datasources. He also used this to analyze the impact of policy changeson the economy from 1974 to 1987.

Ezaki (1976) clarified the various theoretical aspects in theexisting system of national accounts and summarized and inter-preted them with particular reference to the Philippines. His pa-per showed that Walras Law holds in the existing system of na-tional accounts especially in the national income statistics. Thismeans that the national income statistics itself could be interpreted


in terms of a general equilibrium framework. In his theoretical in-terpretation of the national income statistics, he attempted to makea special distinction between supply-demand equilibrium condi-tions, budget constraints and distributional equations in produc-tion. This was because the three different types of equalities areused in a mixed and entangled manner in the five basic accountsof existing national income statistics. He also showed that thereexisted some conceptual inconsistency between national incomestatistics and national wealth due to difficulties in treating generalgovernment properly and consistently.

Computable general equilibrium and macroeconomicmodels. Computable general equilibrium (CGE) tools had been ex-tensively utilized for policy analysis in various parts of the world.The PJD had featured various articles that try to use such modelsin their analysis. Habito (1987) did simulations with a CGE modelof the Philippine economy and successfully quantified the efficiencyand equity impacts of alternative tax structures. Evenson (1986)used an impact multiplier or partial CGE model (treating nonagri-sector exogenously) and a full CGE model (i.e., treating other sec-tors endogenously) for the Philippines (1986) for agricultural policyanalysis. Other sectoral models (Evenson 1986 and Quisumbing1986) specifying a producer and consumer core of typical multi-sectoral models were also featured in the 1986 special issue onmathematical methods for policy analysis in agriculture. In Kunkel,Gonzales and Hiwatig (1976), theoretical advances of modelingwere amplified and applied to a simple linear programming prob-lem to determine changes in the agricultural sector resulting fromdifferent supply-demand balances due to input scarcities andchanges in productivity and consumer preferences.

Bautista (1988) examined the general equilibrium effects ofproductivity on manufacturing with special reference to food pro-cessing while Doroodian and Boyd (1995) assessed the effective-ness of export promotion policies (subsidies and real devaluation)in the Philippines. Cororaton (1997) used a CGE model of the Phil-


ippine economy called APEX to simulate the effects of GATT-UR/WTO. He concluded that based on two different world growthscenarios, the overall potential impact was positive, with real GDPincreasing from 0.64 to 0.7 percent. However, under the differentscenarios, certain sectors will be affected negatively (e.g., threeunder the agricultural sector and mining). In his review of popu-lation-development-environment models, Orbeta (1996) includedCGE models by Cruz and Repetto (1992), which analyzed the en-vironmental impact of adjustment programs.

A macroeconomic four-sector, 12-equation model was usedby Phelan and Yoshno (1995) to assess the impact of overseas de-velopment assistance (ODA) on the Philippine economy. Theyfound that in the short run, ODA had a cushioning effect on thecyclical fluctuation of income but created a chain of dependencyin the long run. In the future, it is hoped that the CGE models willbe utilized increasingly to assess various policy alternatives.

System of National Accounts. In the 1976 workshop pro-ceedings on the development of PNSA (which came out in the1977 first semester issue of the JPD), then NEDA Director-GeneralGerardo Sicat explained that the objective of the workshop was toimprove the production function of national income accounts.He added that if the national income accounts are the final endproduct of all statistical series the government compiles on pro-duction, prices, trade, etc., then we must strive to make that prod-uct as good as possible.

Mijares (1983) traced the development of the system of na-tional accounts to the work of the Conference of European statis-ticians after the Second World War under the UN Economic Com-mission for Europe. In 1952, the UN published the system of na-tional accounts for international data reporting, which was re-vised in 1968. This was considered the blueprint for the develop-ment of macroeconomic accounts, which included balance sheets,financial accounts, input-output distribution of income and wealthand employment. The Philippine accounts find its roots in what


was compiled by William Abraham in 1952 (1946-51) in his doc-toral dissertation in NYU.

The PJD had featured the various workshops that tried torefine the Philippine National System of Accounts (PNSA). It spe-cifically tackled the two workshops (1971 and 1977), methodolo-gies and sources of data in production and income-originating sec-tors, and expenditures/financial and government accounts. In the1983 PIDS-NEDA workshop on the PNSA, the focus was on fi-nancial and government accounts-government transactions (clas-sification and valuation), foreign transactions (balance of payment)and other issues (export processing zones, base year, the informalsector, etc.).

Domingo (1992) explained the additional refinements in thesystem, which was characterized by the expansion in sectoral cov-erage and the changes in data and estimation methods in the itemsof certain accounts. Coverage expanded in varying degrees to in-clude agriculture, construction, mining, electricity, gas, water, gov-ernment services and consumption, fixed capital formation, in-crease in stocks and foreign trade. It also adopted recommenda-tions of the 1968 and 1993 United Nations System of Accounts.

Data quality assessments. The PJD has also been the venuefor various authors to assess the accuracy and quality of data gath-ered by statistical agencies. In particular, Bautista and Tecson(1977, 1978) examined the accuracy of trade recordings betweenRP and Japan and the US while David et al. (1990) evaluated Phil-ippine corn statistics, and the quality of Philippine Coconut Statis-tics. Reyes and Cantillep (1981) assessed export data with a viewto improving a related price index, while Ono (1982) reviewedincome in kind underreporting in the Integrated Survey of House-holds.

Impact assessment and analyses. Development projects needto be assessed to determine if they actually promote the well-beingof the target beneficiaries. Onate (1978) developed indicators formonitoring rural area development projects to measure the level,


pace, direction of the economic and social impact of project com-ponents on the rural poor. Reyes (1979) identified and analyzedthe major issues and problems relating to the measurement of so-cial development and the social impact of development projects,particularly those relating to identification and use of indicatorsfor monitoring and evaluation. The PJD also featured in its 1984first semester issue various project assessment reports which wereoutputs of a training program designed and implemented by themicro component of the Economic and Social Impact Analysis/Women in Development Project of the United States Agency forInternational Development. The reports were written by variousstaff members from NEDA, Ministry of Local Governments, Phil-ippine Ports Authority and the Davao City Water District.

Contributions of Prominent Economists and Social ScientistsA journals prestige can be gleaned from the personalities

who contribute papers and articles to it. Prominent economistshere and abroad have published their research outputs and reflec-tions in the PJD.

Srinivasan (1992) examined conceptual and measurementissues in the linkage between income distribution and themacroeconomy. He noted that the primary sources of data for mod-eling the linkage (i.e., household surveys and national income ac-count statistics) usually differ in their estimates of the same cat-egories of income and expenditure. Thus, modeling exercises shouldattempt to reconcile these two sets of data at each point. However,measurement errors still affect most data to some extent and house-hold income data to a large extent because they are affected by thelife cycle, b

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Philippine Development Essay